Client Alert

Appeal of the Decision in the Transneft vs. Sberbank Dispute: Sophisticated Investors Can Be Treated As Such

06 Sep 2017

This brief summary of the decision, delivered on 30 August 2017, will be of interest to anyone entering into derivative transactions involving Russian counterparties.


For details regarding the first instance decision, please see here.

On 30 August 2017, the 9th Arbitrazh Appellate Court published its decision from 23 August 2017, reversing the decision of the Moscow Arbitrazh Court, and dismissed the lawsuit entirely.

Arguments of the court:

The court put forward the following reasons:

  1. The claimant had full knowledge and understanding of the transactions it was entering into and the respective consequences. The court reviewed the correspondence between the parties and also pointed out that the claimant had signed a declaration of risks, which described in detail the transactions and the associated risks. The court also held that since Transneft had considerable experience in entering into derivative transactions with a various banks, it was expected to understand the nature of the transactions that it was entering into.
  2. The claimant had affirmed the transaction. The Appeal Court applied the rule that prevents a person who has demonstrated a desire to keep a transaction valid despite knowing grounds for its invalidity from trying to invalidate it later. The court held that even if the options had been invalid, Transneft had effectively affirmed them by performing its obligations under the options. The court also relied on the fact that it took Transneft three years to bring an action.
  3. Sberbank owed no fiduciary duties to Transneft and was not a trusted advisor but an independent counterparty. The court relied on a provision to that extent, contained in the declaration of risks. The court also reviewed Transneft’s internal structure and concluded that Transneft had employees with the requisite expertise who were responsible for assessing relevant risks, and that these employees had in fact completed an independent assessment of such risks and made a corresponding internal presentation, after which the call and put options were entered into.
  4. Sberbank did not act in bad faith and did not abuse its rights. The Appeal Court found that the conditions of both options were symmetrical and that both parties had negotiated equally. The court also reviewed the correspondence between the parties and held that Sberbank had actually provided more guidance and information to Transneft than it was expected to.
  5. Transneft had enough time to assess the risks. Having reviewed the list of internal approvals at Transneft, which had been received before Transneft entered into the options, the Court of Appeal established that Transneft had had sufficient time to consider the risks associated with the options and had in fact assessed all those risks. Therefore, Transneft made an informed decision when it entered into the options.


The court decided that, given the size of Transneft’s business and its frequent involvement in FX derivative markets, Transneft was a sophisticated counterparty and therefore did not require extensive guidance from Sberbank.

The court further concluded that Sberbank did not act in bad faith and disclosed all material risks to Transneft, which Transneft independently reassessed.

Financial institutions offering derivative products to Russian counterparties will find this appeal decision very helpful because it: (1) reaffirms the practice of expecting sophisticated counterparties to assess the risks relating to any complex financial transactions themselves and (2) will deter such counterparties from attempting to avoid the consequences of making a bad bargain by pleading lack of required knowledge.

It remains to be seen whether this decision is final or whether it will be appealed to the Supreme Arbitrazh Court of the Russian Federation.



Unsolicited e-mails and information sent to Morrison & Foerster will not be considered confidential, may be disclosed to others pursuant to our Privacy Policy, may not receive a response, and do not create an attorney-client relationship with Morrison & Foerster. If you are not already a client of Morrison & Foerster, do not include any confidential information in this message. Also, please note that our attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.